Brazil's indebted states dealt blow a Temer vetoes relief

Brasilia - Brazilian President Michel Temer vetoed part of a bill providing relief for the nation’s debt-ridden states, demanding they do their part in fixing a financial crisis that has forced cuts in services and delays on salaries.

The finance ministry on Wednesday said that the president had decided to veto the provisions that would have largely exempted states from cost-cutting measures, according to a statement published by its press office.

It added that the ministry would continue to look for a solution to grant states the necessary tools to carry out fiscal adjustments.

The partial veto comes after lawmakers stripped the bill of virtually all the austerity obligations - such as salary freezes, increased pension contributions, and privatizations - that states would commit to in exchange for debt relief.

State finances have deteriorated in recent years as Brazil’s deepest recession on record curtails tax revenues, raising prospects of a federal intervention that could threaten Temer’s austerity drive.

The text approved by Brazil’s lower house on December 20 gave states up to 20 additional years to pay off their debts with the federal government. Those in deeper financial crisis, including Rio de Janeiro, Minas Gerais and Rio Grande do Sul, would have been allowed to halt debt payments for three years.

The government will send a new bill to Congress similar to its original proposal, according to an official familiar with the matter who requested anonymity because the discussions are not public. States’ recovery plans must be acceptable to the federal government, the official said.

In the meantime, the Temer is seeking a temporary, short-term solution to help insolvent states, Folha de S.Paulo newspaper reported without saying how it obtained the information.

In 2017 nearly half of Brazil’s 26 states expect to post a primary budget deficit, which excludes debt interest payments, according to O Estado de S.Paulo newspaper.

The crisis has been most acute in Rio de Janeiro, where many civil servants have yet to receive their November salaries.

Some of those who have been paid on time donated basic food products to their less fortunate colleagues over the holiday season, according to the G1 news site.